GM stock officially trades below 30 level

After completing its 22nd week of trading since its IPO, GM stock has not only broken all levels of IPO price support, but has tested the psychologically significant 30 price level with its lowest weekly close on Friday. As of Monday morning, pre-market pressure was followed by a lower open and a plow through the 30 level.
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Yes, it's finally confirmed by the 15-minute chart shown. GM stock has a new low. MARKET CLOSE UPDATE: GM closed below 30 at 29.97 today.

The pre-market action of the general market as noted by the ETFs SPY, DIA, QQQ and IWM are not helping either. All were still down just before the opening bell; and that does not bode well for auto stocks today, let alone GM which is already in a weak price-technical position.

Still, by 9:45 a.m. GM stock was holding the line just above 30, as the major ETFs showed buys holding the line as well. It would seem some believed the conditions were oversold and bringing an opportunity for some buying. How long that would last was answered shortly.

However, GM did find some buying pressure right at the opening bell just above the 30 level, as noted on a 5-minute intra-day chart. Time would tell how long that would last.

During the opening hour, though, volatility can be high. Perhaps that is why Jon Najarian, owner of Option Monster with his brother Pete, and a commentator on CNBC calls its “amateur hour.”

Unfortunately, as an IPO, GM stock doesn’t have any past history of price dynamics that would define potential support and resistance like mature trading stocks. At this point in time, we know more about upside limits that we know about downside limits.

Truth is, there are no limits to the downside except zero level. Of course, GM stock has some book value that could stand as a support level, but it also has billions in debt that say otherwise. So, the only recourse for traders and investors alike is to use technical analysis from an absolute reference point.

One of two things will happen this holy week: The market will pick up due to a low volume of traders; or the market will slide under the pressure of last week’s sell-off.

As a trader, I cannot know for sure what will happen. Perhaps the futures market will guide the general market to rise. Therefore, futures may be leading the market more than we like to think.

Perhaps the dollar will set the stage, or oil will send a clear message. Bottom line is, GM stock is in a tough position technically, because there are no technicals to guide us. Oversold conditions can remain that way for a long time.

A few weeks ago I wrote, once an old high or low is broken as was the weekly low of 30.20 from two weeks ago, means buyers will come in or prices will tumble like a rock from that level.

All we below last week’s low of 30.10 are absolute numbers like 30, 25, 20, etc.; or percentages of the IPO price like one-half of 33 or 16.5; or two-thirds of 33 at 22. Truth is, that’s all we have besides increments of book price.

Bottom line is, GM is not a stock to trust placing money, in my opinion. Of course it can go up, but it has as much potential to not go up.

If you want to play the auto sector, there are better stocks for sure. Take the stock of Honda Motor Company (HMC), for example, which closed up last week as 35.86. Although it has fallen these past few weeks as well, we at least can see clear price support at the 28 level.

Even Ford stock, symbol F, which traded Friday at 14.72, has a clear price support at 13.75.

One issue to beware, though. The VectorVest system which I track is a hair away from giving a confirmed down signal. That means playing stocks more to the downside, not the upside until the VVC tells us it’s clear.

Will GM stock break 30 this week? I do not know for sure, but the trend bias seems to indicate that has great probability; and probability is all we have as traders; never surety.

Disclosure: Frank Sherosky, creator of the chart and author of "Awaken Your Speculator Mind" does not hold any stock or option positions in this equity at this time.

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About the Author: After 39 years in the auto industry as a design engineer, Frank Sherosky now trades stocks and writes articles, books and ebooks via authorfrank.com, but may be contacted here by email: [email protected]

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Comments

What is the target price for GM Stock by the end of 2012. Is it expected to go up or down?
Just read about an update via a Forbes article that touted 42 for GM; implying GM is underpriced.
Thanks for the question: Last target I ever read or heard was 55, but that was well before the stock tanked just below 40 level. Will check to see what talking heads on CNBC and elsewhere are saying now, but I prefer the short term techncials, which says overhead resistance has to be breached first; and that's at 31.97 based on today's 40-day moving average. Finding a level to buy at this point is like catching a falling knife. Question is, can you stand the heat and the pressure to buy now and hold until 2012, as the general market isn't exactly at oversold levels?
UPDATE on Market Close: GM stock closed today a tad below 30 at 29.97